Non-Linear Compensated Labor Supply Elasticity
RCTField Experiment
Conventional labor supply models often assume constant wage elasticity along the intensive margin, failing to account for why work hour distributions in the economy show heavy clusters at full-time employment and relative sparsity in part-time employment [15, 16].
Picture this
Imagine climbing a walking path that starts as a broad, gentle slope where small increases in wage pull people to work significantly more hours, but then abruptly curves into a steep cliff around full-time hours where large wage increases yield almost no additional work hours [15, 17].
What the evidence says
Compensated labor supply elasticity is highly elastic below 30 weekly work hours (exceeding 1.0), but becomes highly inelastic at 40 hours per week and above (dropping to 0.5–0.6) [3, 11, 19].
- Who was studied
- N = 1,152 unemployed applicants in nationwide U.S. metro areas applying for phone survey and data entry positions [5, 7].
- How
- Discrete choice model tracking job choice behavior across weekly work hour bundles from 5 to 50 hours to trace the inverse labor supply curve and calculate point and polynomial-fit compensated labor supply elasticities [8, 18, 19].
What to do
Apply separate elasticity parameters when evaluating wage policies, utilizing an elasticity greater than 1.0 for part-time/low-hour workers and an elasticity of 0.5–0.6 for full-time workers [11, 15].
From the source
"Below 30 work hours the elasticity of hours with respect to the wage is greater than 1. At or above 40 hours it is in the 0.5-0.6 range [11]."
Labor_Supply_and_the_Value_of_Non_Work_Time_Experimental_Estimates.pdf